Why fixed deposits are a good choice?

FD (Fixed deposits) are the safest and simplest form of financial instruments. The interest rate on fixed deposits are higher than that offered on savings account. Some banks offer loans against Fixed Deposit Certificates at competitive interest rate. Some banks also offer credit card with the credit limit up to the amount of the fixed deposit amount. Fixed deposits are permitted for up to 10 years only. The longer the term period, higher is the interest rate provided the repo rates don’t fall. The companies nowadays offer company fixed deposits. But these are not regulated by the RBI.

Company Fixed Deposits are deposits placed by investors with companies for a fixed period of time at an agreed rate of interest. The Financial Institutions and Non-Banking Finance Companies accept the Company Fixed Deposits. They are mobilised by the government under the Section 58A. They are unsecured deposits and therefore if the company defaults, the investor cannot sell the documents to recover the capital. Thus making it a risky investment decision. Company fixed deposits are provided when the companies need cash flow but cannot issue shares, they offer fixed deposits at profitable rates. 

The yield on your deposits vary from individual to individual. You can earn higher interest than that of your colleague as u are in a higher tax bracket and the investment returns are less. You need to optimise the fixed deposits’ utilisation. It can be done through building an emergency fund by opening a fixed deposit account. The money kept aside for emergencies can also earn returns. When a person is setting up new investment base, it is advised that he open a deposit account rather than taking credit. The fixed deposit will appreciate his income potential. By investing in deposits, the individual is ensuring that he has a safety cushion of money to back him up.

When you are investing do not end up investing in high risk investments such as moving investments in equity sector, commodities or even real estate for that matter. You can instead even it out with investing in bank or company fixed deposits. If you wish to save taxes, then you can invest for fixed deposits in your parent’s names as long as they don’t have taxable income. The interest earned on the fixed deposit is tax-free for up to Rs.2 lakhs and up to Rs.2.5 lakhs if they are senior citizens. Senior citizens also earn 0.25% to 0.5% additional interest on the fixed deposits. You can also invest in your eldest child’s name and save interest up to Rs.2 lakhs as it is tax-free.

Fixed deposits also play an important role in the consolidation of investments when you approach retirement. When you are retired, you don’t really have a fixed source of income other than pension. That is when fixed deposits play a pivotal role. You can invest in fixed deposits for different tenure to meet you various financial needs in the future.

But, be very careful when you choose the bank to invest your fixed deposits in as the small co-operative banks may not be able to secure your money at the time of bankruptcy. The rule is that the bank must secure each investors for up to Rs.1 lakh per investor per bank. But, the company fixed deposits do not have any assurance as they are not regulated by the Reserve Bank of India. Keep in mind that the company fixed deposit are unsecure and you have no collateral. But since the risk is higher, the interest rate is also higher. Exercise caution before investing.

Why Non-Convertible Debentures beats Company Fixed deposit

An NCD might not ring a bell in the minds of most Indian investors but is quite popular in the western world. The concept of issuing NCD’s is relatively new to India, having been first issued by SBI in 2008-09 to retail investors. The bonds are listed on BSE/NSE retail debt terminal.

Why ncd beats company fixed deposit from Sathish Mithun

Advantages of investing in NCD’s v/s Bank/Corporate Deposits

1. ·         NCD’s are in demat form- eliminates hassle of maintenance and safety of physical certificates.
2. ·         NCD’s can be traded- The bonds issued under public offer are listed on the BSE/NSE. Absence of lock in period ensures the investor can exit before maturity.
3. ·         No TDS Deduction- Since the bonds are in demat form and are listed there is no TDS.
4. ·         Opportunity to earn profit- The bonds are listed and traded on the market, which gives an opportunity to trade and earn profits. The value of these bonds is inversely proportional to the interest rates in the economy.
5. ·         Secure- Unlike Bank deposits which can generally be insured upto a certain limit, around Rs.1 lakh in most cases, NCD’s are secure in nature.
6. ·         Pledging of NCD’s- Bonds can be pledged with banks/NBFC’s to avail a loan or overdraft facility.
7. ·         Flexibility in tenure of maturity- The tenure of NCD’s could range from less than a year to 30 years. This acts as a buffer against reinvestment risk and also offers a steady source of income through interest.
8. ·         Earn interest income till date of transaction- If an investor sells the bonds before their maturity he/she will get the accrued interest till the date of the sale.
9. ·         Multiple interest payment options- An investor has the option to choose either cumulative payment or regular payment on interest.
10. ·         No settlement risk- The transactions are confirmed off-market but are settled on the NSE/BSE platform, thus eliminating settlement risk.

PNB raises Rs 1000 cr through sale of bonds

As a step to raise capital to meet the global capital adequacy ratio (CAR) requirement, public sector Punjab National Bank on Tuesday said it has raised Rs. 1000 crore in domestic market via private placement of bonds. 

PNB garnered Rs. 1,000 crore through long-term bonds which have a coupon rate of 8.23 % on February 9, the bank said in a statement.

As per the Basel III norms on CAR, all public-sector banks will need capital infusion of Rs 2,40,000 crores by 2018, the Finance Ministry has said. The Government plans to infuse capital to these banks in stages and has allocated Rs 11,200 crore for this in the current fiscal. Of this, PNB was allocated Rs 870 crore.

Finance Minister Arun Jaitley has stressed the need for capital infusion in his budget speech and said while public ownership will be retained, there will be an expansion of shareholding in a phased manner. Shares of these banks will be sold in a phased manner, he had noted.

What is Basel III?

Basel III (or the Third Basel Accord) is an international, voluntary regulatory standard on banking. Primarily, the accord focuses on regulations related to capital adequacy, market liquidity risk and stress testing. The basic principles were agreed upon by the members of the Basel Committee on Banking Supervision in 2010–11.

After the global financial crisis of 2007-08, banks decided to make the capital adequacy ratio stricter and promote better financial compliance as a means to check such crises. Basel III evolved as a mechanism to tighten bank capital requirements by increasing bank liquidity and decreasing bank leverage.

About Punjab National Bank

Punjab National Bank (PNB), one of the largest nationalized banks, was established 120 years ago. The bank has 6081 branches including 5 foreign branches, 6940 ATMs with a customer base 8.9 crore. PNB, has strong fundamentals, good brand image and enjoys trust among customers. The Bank offers wide range of products and services to cater to every kind of need.

The Bank has won many laurels and accolades in recognition of its overall performance. Recently, PNB was awarded the Golden Peacock Innovative Product/Service Award 2014 by Institute of Directors, It also bagged the ‘Global CSR Excellence and Leadership Award’ for ‘Organisations with Best CSR Practices’ and ‘Bank with leading Financial Inclusion Initiatives Award’ by ABP News and “Vigilance Excellence Award” by Institute of Public Enterprises, New Delhi.